Deductible Ira's are Best For Workers

Peter J. Ferrara, a Washington attorney, is author of Social
Security: The Inherent Contradiction and editor of Social Secu-
rity: Prospects for Real Reform, both published by the Cato Institute.

Executive Summary

The tax-reform bill currently before the Senate is one of
those rare pieces of legislation that are truly historic and
revolutionary. It deserves the wide support it is receiving.
But there is one major flaw in the bill that is so serious it
must be corrected before passage by the full Senate. That is
the provision sharply restricting the deduction for Individual
Retirement Accounts (IRAs).

Unfortunately, the debate over IRAs has been marred by
widely trumpeted but flawed and inaccurate analysis. These
inaccuracies must be cleared up. The fact is that workers
would receive much higher retirement benefits from their IRAs
with the deductible IRA under current law than with the non-
deductible IRA under the Senate Finance Committee bill. Restoring the full deductibility of IRAs under the Committee bill
is necessary if workers are to receive about the same benefits
in retirement from their IRAs as under current law.

Moreover, it should be recognized that the policy justifications for fully deductible IRAs are still applicable and compelling under the Committee's sweeping tax-reform proposal.
Opinion polls also show that the public strongly supports restoring IRA deductibility. Doing so would only strengthen the
appeal of tax-reform legislation.